News

Rent committee pushes landlord-friendly changes to policy

City's attorneys warn that decision on fair profits for apartment owners could lead to legal challenge

Mountain View's new rent-control law strictly ties apartment rent increases to the regional Consumer Price Index (the red line). But a different index (the blue line) will now be used by city officials to gauge how much landlords should be earning, potentially allowing further rent increases. This measure, dubbed the Rent of Primary Residence index, is derived from Bay Area rental prices. This index has fluctuated much more than the standard CPI for the area, including some pronounced spikes during real-estate booms.

Mountain View's proposed rent control policies would be the most generous for landlords in the state, according to tenant advocates. But on Monday, the city's Rental Housing Committee decided to tilt the balance even more in favor of property owners.

In what became a theme of the July 24 meeting, the city's Rental Housing Committee repeatedly pushed for landlord-friendly changes as members designed a petition process for the city's new rent control program. Those changes led them to heavily tinker with proposed solutions and jettison some recommendations made by their own hired experts.

Right at the outset of the Monday night meeting, Committee Member Tom Means announced he wanted to veer from the staff proposal. The evening's major issue was designing a so-called fair-rate-of-return standard, a formula for determining how much profit landlords are entitled to make from rent-controlled apartments. It's a controversial topic, and the committee spent most of its last session listening to hours of heated public comments.

Means took aim at the staff's recommendation to tie this profit margin to the all-encompassing Consumer Price Index (CPI) for the region, which lumps together a wide range of market prices. He argued that it didn't make sense to connect housing profits to an index that tracks a long list of unrelated costs like energy, food and transportation.

"To use the (regular) CPI is not a great way to look at the market for landlords," he said. "We can do better and choose a different index that better reflects the market conditions."

What emerged was a technical discussion that felt like a university seminar, with Means dominating. Drawing from his background in economics, he proposed using a completely different price index specific to the rental housing market in the Bay Area, which he assured members would be a vast improvement over the CPI. In recent years, this rental-housing index has increased at nearly twice the rate of the regular CPI for the area, although Means pointed out that this rental index has also been comparatively lower than the CPI in past years.

Alternatively, he proposed a second idea to basically add about 30 percent on top of the regular CPI to "reduce risk for fluctuations." Committee member Vanessa Honey liked this idea, pointing out this extra amount would offset the expense landlords bear from higher utility costs and other expenses such as the "$18-per-hour minimum wage" taking effect soon. (In fact, starting in January, the city's minimum wage will rise to $15 per hour.)

"The CPI is going to be too restrictive; We have to leave some money for landlords to pay their mortgages," Honey said. "Otherwise they'll lose their property and it won't be attractive for new buyers."

As the committee spit-balled ideas, the city-hired experts from the law firm Goldfarb & Lipman began raising some red flags. They warned that some committee members' idea for a fair-rate-of-return standard might not seem so fair in a court of law. Basically, the committee was treading into risky territory, said attorney Eric Phillips.

"The CPI meets the legal standard for a fair rate of return -- there is not a precedent for having an increase greater than that," he said." From a legal perspective, this could invite challenges from (outside) groups."

The warnings didn't stop there. Phillips also pointed out the committee could be perceived as "double-counting" certain expenses for landlords. A wide range of expenses, including utilities, can already be used by landlords through the petition process to justify higher rent increases, he said. If the Rental Housing Committee pointed to those same expenses as the reason for raising the CPI threshold even higher, then it would be like counting them twice, he cautioned.

But Means disagreed with that warning, and he assured his colleagues that all his ideas were "on solid legal ground."

To be clear, the new complex guidelines being discussed on Monday only affect property owners who go through the city's petition process. Under normal circumstances, landlords in Mountain View can raise rents on eligible apartments at most by the same percentage as the annual CPI increase. For the upcoming year, that will be about 3.4 percent.

Landlords can seek permission to raise rents higher if they can prove the city's rent limit is eating into their revenues too much. To do this, they would have to provide an itemized list of their expenses to show they were making less than past years.

City staff proposed setting the base amount that landlords are entitled to earn on their properties at basically the same CPI level used to determine annual rent increases.

Indeed, Committee Member Evan Ortiz repeatedly reminded his colleagues that many aspects of Mountain View's fair-return standard as proposed by staff would already be more generous to landlords than those in pretty much every other city with rent-control laws. He scolded his colleagues for wanting to go further with concessions for landlords.

"This is incongruent with the spirit of Measure V," he said, referring to the successful rent control measure on the November ballot. "If this compounds year over year based off something that is already increasing, then this would blow a hole in the (rent control) measure."

As it came to a vote, committee members were starkly divided on the issue. The committee initially voted on setting the fair rate of return at 130 percent of the CPI, but this motion was defeated in a 2-3 vote with Ortiz, Matthew Grunewald and Emily Ramos opposed.

Grunewald later signaled he was amenable to using the alternative rental-market CPI proposed by Means. That proposal was approved in a 3-2 vote with Ramos and Ortiz opposed. Following the meeting, tenant advocates blasted the RHC's actions as a giveaway to landlords.

"The majority of RHC members seem to be focused on maximizing landlords' profits, which is a far cry from the 'fair rate of return' that the law demands," Juliet Brodie wrote in an email to the Voice. "We wish the RHC would spend as much time on the other values in the CSFRA -- protecting tenants against unreasonable rent increases and providing community stabilization -- that it spends calculating how to keep landlords' income streams intact."

Comments

53 people like this

Posted by Dan Waylonis
a resident of Jackson Park
on Jul 26, 2017 at 2:24 pm

It's good to read that someone with an actual economics PhD and experience with MV politics like Tom Means is involved. My personal preference is to provide better zoning, encourage housing growth along the 101 corridor, and expedite the approval process.

Posted by Greg Nelson
a resident of Monta Loma
on Jul 26, 2017 at 3:24 pm

I have lived in a small well-maintained complex on Rock Street for over 18 years.
The owner even granted rent reductions some years ago when occupancy rates were low.
Since then my annual rent increases have been quite reasonable IMO.
I am retired on a fixed income (Social Security and pension).
Although I support the concept of reasonable rent control, I believe this ordinance, as written and voted in, is unreasonable with it's 3.2%-3.5% allowable annual increase.
IMO a 5%-7% annual increase is far more reasonable.
I am encouraged that the Rent Control Commission seems to be headed in that direction.
Cheers

I live in a large apartment complex, where a three-bedroom apartment is currently being rented out for $1,300 more than the price I am paying for the exact same floor plan. That's a 35% increase in just three years. Explain to me how landlords aren't getting a fair rate of return.

Posted by News Article?
a resident of Cuernavaca
on Jul 26, 2017 at 4:22 pm

If this is the "news" article (nice title!), I can't wait for the editorial.

@cpd - If the landlord was below water on his mortgage and investment (which is perhaps the most critical data point in all of this), then that increase is absolutely reasonable, regardless of what you might feel is "fair".

Posted by Tom Means Business
a resident of Another Mountain View Neighborhood
on Jul 26, 2017 at 4:34 pm

Anyone that objectively attended or listened to the meeting (you may listen to the replay online) Link here: Web Link
would conclude it is crystal clear Mr. Means knows his stuff with respect to the practical application of economic theory and he is able to clearly articulate and logically rationalize his thought process when making a suggestion. His suggestions are not based on emotion like fellow committee members Ramos and Ortiz, rather he is pragmatic and a credit to the City. I am thankful he is the adult in the room here along with Julian Pardo de Zela the alternate. The way he abstained on voting for the City staff recommendation (he knew it would be a draw) to steer it to requiring a court ruling was silk smooth.

The question that needs answering here is: what is the real reason the City did not file for declaratory relief on its own in April and why wasn't the City attorney present to answer this? The fact that neither side (CAA or Mills Clinic) agreed on the approach probably means it is the right one as it favors neither of them.
Kudos to the logical members of the committee for doing the right thing here.

Posted by Mt. View Neighbor
a resident of North Whisman
on Jul 26, 2017 at 7:41 pm

Hopefully, this group find a way to protect landlords so they don't lose their shirts and everything they own in this disaster.

This rent control is one of the most punishing in the country and affects small middle class landlords. Honestly, these landlords have no choice but to sell to developers, given the long range consequences of Measure V. If you had tried, you couldn't have designed a better route to reduce low cost housing and generate a free for all for developers and resulting sky is the limit rents with tiny pockets of dilapidated buildings at below market rates, and subpar living conditions.

Yes, someone needs to protect that downtrodden class, the landlords. It's not enough that we subsidize them with Prop 13 so they don't pay their fair share, we need people like Tom Means on the committee to undermine the will of the people and actively work against our city charter.

@Amused: assume you're unaware that approx. 65% of MV residents are renters - thus 65% of us are fools and deserving of being fleeced by some [not all] apartment owners. Your uninformed input is appreciated. BTW which "other community" are you a resident of?

@cpd: this is relevant and significant information - 35% increase in 3 years (12% annual) in a large complex, as my observation has been that "lower rent" complexes are smaller - suggests to me that at least part of exorbitant rental increase problem is being generated by large complex developers/owners, and smaller unit/lower rent owners are simply following.

@Shame: Pop13, misguided as it was when enacted in 1978, attempted to protect all property owners - homeowners, apartment owners, corporate owners [PG&E for example] - from the unreasonable property property taxes then occurring in some California counties.

Posted by The Business Man
a resident of Another Mountain View Neighborhood
on Jul 26, 2017 at 9:38 pmThe Business Man is a registered user.

Hello Everyone,

By now you must be aware that the RHC has instructed the City Attorney to go back to court regarding the enforcement date of the CSFRA. So this means that the City will be in court, it is inevitable.

But there still is the matter that the City Attorney has made a determination that they city has no authority to deny that the CSFRA enforcement IS required to be the day of December 23rd, 2016. Since the city will not avoid a court hearing at this time, UNLESS THE CAA REFUSES TO TAKE LEGAL ACTION. The City Council simply must make an official resolution to declare the City will act according to the advice of the City Attorney. WHY?

SINCE THE CITY ATTORNEY HAS MADE AN OFFICIAL DETERMINATION THAT THE ENFORCEMENT DATE OF THE CSFRA IS REQUIRED TO BE DECEMBER 23, 2016.

Refusal is pointless now since court action is going to occur as of now. Thus you might as well just issue an emergency resolution establishing the enforcement date policy for the City of Mountain View as December 23rd 2016. So it would seem that refusal of the City Council to issue the urgent resolution would not be of any benefit to the city at this time. The city attorney is now instructed to seek clarification already, it cannot be prevented. However the Santa Clara court decision made in April 5th, lays a good case that the tenants are being subjected to unlawful rent overpayments. Not only was the preliminary injunction denied, but the courts in effect determined that:

“Without the protections afforded by the measure, some residents of Mountain View face excessive rents and arbitrary evictions, and the City of Mountain View will be handicapped in its effort to comply with a state-mandated plan to address housing needs.”

And those payments are REQUIRED to be returned. The challengers of the CSFRA will choose whether they will seek a court order. If the challengers in fact decide not to do so, that is their choice.

IT SIMPLY MEANS YOUR INABILITY TO COMPORT WITH THE CITY CHARTER AT THIS TIME IS NOT A GOOD EXAMPLE OF CITY GOVERNANCE.

Posted by Long term renter
a resident of Another Mountain View Neighborhood
on Jul 26, 2017 at 10:01 pm

I live in a Vittoria Management property. Over the space of 10 years, my rent was raised 85%. Inflation has run about 20.5% in that length of time, according to the consumer price index. Rent increases went crazy when Google, LinkedIn and Facebook started subsidizing their employees' rents.

Posted by Research
a resident of Old Mountain View
on Jul 27, 2017 at 1:45 am

Ask yourself WHY rent control is only ALLOWED in FOUR states (California, Maryland, New Jersey and New York) and OUTLAWED in thirty two? (In states where the statutes are silent, local governments may enact rent control ordinances according to their general police powers, or they may be prohibited from doing so according to case law, - which has happened in Connecticut.)

The majority of states know that rent control has been an abysmal failure, and has brought degradation of neighborhoods, reduced available rental stock, and has brought greatly increased cost to taxpayers to manage and litigate the disruption these rent control laws bring to a city.

As evidenced in Mountain View, we see the small apartment owners of older buildings considering to cash out and convert to condos, as they cannot suffer the loss rent control brings, thus the newer apartment buildings will be even more in demand and the cost to renters will climb. The Rent Control Board, as already evidenced, will be extremely costly and this over-run will fall to the all the taxpayers in the city to cover.

Yet - there are those who continue to demand someone ELSE'S labor and planning be sacrificed for THEIR demand of lower rent. By any definition, that is confiscation of private property, and there is no justification for this. I do understand that people want to live where they want - at the price they want to pay - but life doesn't work like that. It is NOT the responsibility of Mountain View to house everyone who wants to live here. Private property is not a public utility.

Posted by long term renter
a resident of Another Mountain View Neighborhood
on Jul 27, 2017 at 1:56 am

iaefnamien and Research: Corporate landlords should not be allowed to gouge their tenants. That's just wrong. When Google, Facebook and Linkedin took the actions they did, it would have been fine if corporate landlords jacked up rents $400 a month for NEW tenants, but to apply these changes to ALL tenants is simply ravenous exploitation.

Posted by Means to an end
a resident of Another Mountain View Neighborhood
on Jul 27, 2017 at 2:20 am

Former Councilmember Tom Meana is the answer to the passage of rent control from ruthless pro-landlord politicians currently on the City Council. Tom and his 2 pro-landlord plants on the rent board are the MEANS to the END of rent control and all limits on profiteering by landlords determined to exploit the government-created housing shortage in the Bay Area.

"formula for determining how much profit landlords are entitled to make from rent-controlled apartments" can you believe this - is America now a socialist or communist country! This country was built on free enterprise!

Posted by USA
a resident of Old Mountain View
on Jul 27, 2017 at 11:52 amUSA is a registered user.

cpd -- So, your landlord is renting to you for $1,300 less than he could get renting to someone else. Sounds like a nice guy. He is keeping your rent artificially low and is eating $1,300 that he could have gotten.

Posted by george drysdale
a resident of another community
on Jul 27, 2017 at 2:11 pm

"Thou shalt not steal." You don't know how weird California is until you check out other states' laws concerning private property. You see in virtually all the states the owners owns their property. It's his. If a landlord wants to double his rent and empty out his building so be it. 44 states have outlawed rent controls. The main cause of a lack of apartments in the Bay Area is rent control. High demand would create an equilibrium. "Dead weight loss." If you are literate this is on the internet. Or a basic economic text. Mr. Means is driving a stake through the heart of rent control, which is pure evil. The city council should now deliver the death blow. George Drysdale, a social studies teacher